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Senator Calls For Bitcoin Ban In Letter To Financial Regulators

Since Senator Charles Schumer first called on law enforcement nearly three years ago to shut down the Silk Road and cited the black market’s use of Bitcoin for anonymous transactions, the cryptocurrency community has been waiting for the other shoe to drop. It just did: Another lawmaker has demanded an outright ban on Bitcoin.

In a letter to Treasury Secretary Jack Lew, Fed Chairwoman Janet Yellen and other financial regulators, West Virginia Senator Joe Manchin demanded that they “take appropriate action to limit the abilities of this highly unstable currency.”

“This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy,” Manchin wrote. He went on to cite Bitcoin’s use by the Silk Road and other black markets for anonymous transactions, as well as its volalitility as a currency. “The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use.”

Senator Joe Manchin

Congressional hearings and New York financial regulatory hearings have floated the idea of new regulations on Bitcoin that would treat it as a more or less traditional currency, subject to the same anti-money-laundering laws as any other form of money. But Manchin advised that the U.S. instead follow the example of China and Thailand, who he described as having made the currency fully illegal. (In fact, China at least allows Bitcoin to act as a commodity and a store of value, if not a means of transaction.) The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use. “Our foreign counterparts have already understood the wide range of problems even with Bitcoin’s legitimate uses – from its significant price fluctuations to its deflationary nature,” he writes.

Update: A spokesperson in Senator Manchin’s office said that his call for regulation doesn’t yet extend to other cryptocurrencies, such as Litecoin or Dogecoin. And asked how such a ban would be technically feasible, he admitted that the senator is still trying to gather information on “different ways to protect consumers” that might entail a ban or simply increased regulation.

I write today to express my concerns about Bitcoin. This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy. For the reasons outlined below, I urge regulators to take appropriate action to limit the abilities of this highly unstable currency.

By way of background, Bitcoin is a crypto-currency that has gained notoriety in recent months due to its rising exchange value and relation to illegal transactions. Each Bitcoin is defined by a public address and a private key, thus Bitcoin is not only a token of value but also a method for transferring that value. It also means that Bitcoin provides a unique digital fingerprint, which allows for anonymous and irreversible transactions.

The very features that make Bitcoin attractive to some also attract criminals who are able to disguise their actions from law enforcement. Due to Bitcoin’s anonymity, the virtual market has been extremely susceptible to hackers and scam artists stealing millions from Bitcoins users. Anonymity combined with Bitcoin’s ability to finalize transactions quickly, makes it very difficult, if not impossible, to reverse fraudulent transactions.

Bitcoin has also become a haven for individuals to buy black market items. Individuals are able to anonymously purchase items such as drugs and weapons illegally. I have already written to regulators once on the now-closed Silkroad, which operated for years in supplying drugs and other black market items to criminals, thanks in large part to the creation of Bitcoin.

That is why more than a handful of countries, and their banking systems, have cautioned against the use of Bitcoin. Indeed, it has been banned in two different countries—Thailand and China—and South Korea stated that it will not recognize Bitcoin as a legitimate currency. Several other countries, including the European Union, have issued warnings to Bitcoin users as their respective governments consider options for regulating or banning its use entirely. While it is disappointing that the world leader and epicenter of the banking industry will only follow suit instead of making policy, it is high time that the United States heed our allies’ warnings. I am most concerned that as Bitcoin is inevitably banned in other countries, Americans will be left holding the bag on a valueless currency.

Our foreign counterparts have already understood the wide range of problems even with Bitcoin’s legitimate uses – from its significant price fluctuations to its deflationary nature. Just last week, Bitcoin prices plunged after the currency’s major exchange, Mt. Gox, experienced technical issues. Two days ago, this exchange took its website down and is no longer even accessible. This was not a unique event; news of plummeting or skyrocketing Bitcoin prices is almost a weekly occurrence. In addition, its deflationary trends ensure that only speculators, such as so-called “Bitcoin miners,” will benefit from possessing the virtual currency. There is no doubt average American consumers stand to lose by transacting in Bitcoin. As of December 2013, the Consumer Price Index (CPI) shows 1.3% inflation, while a recent media report indicated Bitcoin CPI has 98% deflation. In other words, spending Bitcoin now will cost you many orders of wealth in the future. This flaw makes Bitcoin’s value to the U.S. economy suspect, if not outright detrimental.

The clear ends of Bitcoin for either transacting in illegal goods and services or speculative gambling make me weary of its use. The Senate Homeland Security and Governmental Affairs Committee issued a report just this month stating, “There is widespread concern about the Bitcoin system’s possible impact on national currencies, its potential for criminal misuse, and the implications of its use for taxation.” Before the U.S. gets too far behind the curve on this important topic, I urge the regulators to work together, act quickly, and prohibit this dangerous currency from harming hard-working Americans.

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After I finish reading this article I can go find some porn sites where women in America are being abused due to porn sites on the web. Do we shut down the Internet? No.

23+% of American don’t have a bank account. In developing countries, the rate is obviously much higher. Bitcoin and Digital Currencies change this dynamic and it gives “bankable” people like myself options.

All of our external transfers to our Content Providers have been done in www.Coinbase.com and confirmed on the Block Chain. It does not get any more transparent than that, and people need to do their homework. I have seen Senator Manchin on Morning Joe a number of times. He seems likeable and intelligent with a common sense approach, but he needs to do his homework first.

The senator claims bitcoin is a haven for illicit use. How does that differ from cash?

The senator mentions the blockchain, but then still insists bitcoin is annon. Why is total annon in cash, better than partial in BTC?

I understand that when BTC made mainstream there was alot of confusion. Its been months now guys, and the same comments are being made without a next level type conversation.

The people involved in this are pioneers. The establishment fighting it are like the telephone operators union fighting to claim their relevance. Yes, the same individuals calling for small government, want to retain large gov’t influence in this sector.

“There is widespread concern about the Bitcoin system’s possible impact on national currencies” In other words, our national currencies would not be able to compete against a superior alternative.

As for the other “countries” putting out warnings and “banning” Bitcoin…he should have included the words “The central bank of” before every country he listed. Some country’s central banks are more closely tied to their legal system than others. Apparently Senator Manchin is in the hip pocket of our own central bank. I guarantee that if you look up his donations, a large portion of them will be from (soon to be defunct) financial institutions.

The people involved with this currency are mainly drug dealers and criminals who want to be paid in this medium as well as those who seek to launder money (and that is probably tax evasion or the proceeds of crime anyway). The vast majority do not want bitcoin and for all the trouble it is causing allowing illegal online markets to flourish, the Senator is right in calling for a ban on Bitcoin. The great majority of the bitcoins in circulation are owned by an absolute minority of people ie less than 1000. That tells me that a few wealthy people see it as a toy they can pump up and down and play casino with or run ugly illegal sites like Ross Ulbricht did with Silk Road. The only ones advocating it are either non thinking sheeple or media journalists of a particular bent. Supporters of bitcoin have been totally brainwashed. This is no innovative currency unless it accepts adequate financial regulation and stops claiming the block chain is traceable. If that was the case you would be able to locate the “stolen” Mt Gox bitcoins.”

alana – The beauty about bitcoin ( or rather the open ledger blockchain ) is indeed that all transactions leave a “ trace” . And the beauty of the bitcoin community is that – at its core – it has a very large number of the webs key coders and cryptographers.

As I write this I am aware of several groups of individual community specialists who are cooperating together to go through the tens of thousands of blockchain signatures and transaction records of the dealings of Mt Gox over the past six months or more.

They have already “identified” wallets containing around 400k of the ‘stolen’ bitcoins – which are ( are we surprised? ) in wallets that have clear links to Mt Gox ownership. More revelations from these investigations will be published in the next week or so. If I was Mark Karpeles I wouldnt be sleeping much at the moment!

So what actually happened ? It is clear that there was an issue with ‘double-spend’ which Mt Gox’s own exchange software hadnt patched ( unlike all other major bitcoin businesses who had done this a year ago or more)

Trading Policies from exchange management vary, to keep proper private/public key security. Mt Gox appeared to have been using a very weak form of cold storage, involving manual switching – in and out of their ‘storage wallets’ – which it appears that only Mr Karpeles had full knowledge of all the password protocols. ( some say he wrote them on post-it notes !)

There is no evidence found yet that points to a “hack” of these Mega volumes of bitcoins.

The most charitable explanation for the “missing bitcoins” is that they are still in wallets created by Mark Karpeles – for which he has forgotten the private keys ( not uncommon if you don’t keep meticulous records . Post-it notes are not proper records)

The more worrying postulation is that Mr Karpeles actually has the private keys, but is saying they were hacked to save face about the huge day-trading loses Mt Gox was showing before it closed , as he was trying to get “Angel Investors” to inject liquidity to save his company. ( we know from IRC messages seen that these conversations took place in the week before Mt Gox folded – and that these investors, seeing the real black hole in his accounts, decide not to save Mt Gox.)

There is a third , very disturbing, alternative and one which is sadly quite common in the corrupt world of Wall Street Traders. That Karpeles ‘might’ have tried to cover those earlier day-trade losses by hatching a plan to artificially inflate the Mt Gox price ( which was for the last few months being quoted at almost $100 above the market average ) to “sell off” some of the bitcoins that were being kept in the now ‘stolen wallets” – to try and pay back the loss, and regain his liquidity. Now, I have said ‘might’ … because – for obvious legal reasons – i’m not accusing Karpeles of anything like that. But clearly that is one theory. . as I said – more will soon come out , not by any ‘intervention’ by legal class actions or FED Regulations – but by the efforts of the community itself to follow the evidence that is there on the blockchain! .. follow the trail, and in the end it will show what really happened.

So they have identified the wallets you say? Now tell me who owns or where the wallets are? At this point the public bock chain stops. You know damn well no identification is needed to open a wallet and the wallet can be on any no of usb devices, computers, or even on paper, hidden anywhere. This is tripe. The traceability of bitcoin comes to a deadend at the wallet address which looks like this 123fcHkskskls55hhwywyeioeoeooecrapp Thats all. Noone owns the wallet. So this argument re bitcoin traceability dies at the wallet address. My kid died of an aldulterated drug. I already know which wallet address he paid. I know who else paid that wallet on the same day so I know the total amount. Big deal? The police cant trace the wallet owner who sent adulterated drugs to a 21 year old that killed him. So dont talk crap about bitcoins traceability.

Senator Shumer introduces his argument in paragraph 3 above: “This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy,”

His comprehensive statement expresses four concerns. Taking them in order:

a) Unregulated

Yes. That’s the whole point. It is also distributed, peer-to-peer and with a verifiable supply cap. Taken together, it is more “self-regulating” then UNregulated. The fixed supply cap results in a bounty of benefits. (More about the benefits below)

b) Allows users to participate in illicit activity

Yes. Just like cash

c) Highly unstable

Any new commodity or collectible is unstable when thinly traded. Volatility abates with adoption (not with intervention or regulation). It irons out further, as an increasing fraction of vendors leave receipts in Bitcoin, so that they can spend it with their own vendors or use it for payroll and shareholder dividends, etc.

Eventually, if it is used as a currency and not just a transaction medium, vendors will begin to price goods and services in Bitcoin. When this happens, any volatility will be perceived to be a fluctuating dollar rather than fluctuating bitcoin.

d) Disruptive to our economy

In the simplest terms, bitcoin removes transaction costs and middlemen. It also frees government to do other things, because it doesn’t require the micromanagement of monetary policy.

It’s not really disruptive to the economy, it’s remarkably enabling. But it certainly disruptive to some government institutions, such as the treasury and central bank.

Impact on Government

Adoption of Bitcoin as a stored value (and not just as a debit or gift card) will leads to a gradual realization among governments that Bitcoin is not a threat to sovereignty nor even to tax policy. Instead it presents unbounded opportunity: The opportunity to stabilize markets, eliminate inflation, reduce costs and restore public trust. In short, Bitcoin will ultimately level the playing field, revive entire economies, transform the role of government, and save consumers and businesses billions of dollars each year.

But it starts with the obvious and indisputable fact that bitcoin reduces the friction and cost of paying for goods and services, sending money or settling a debt. From this one benefit (perhaps it is the ‘hook’), a remarkable chain of events is likely to occur as it spreads across the world of commerce. Yesterday, AWildDuck published a very plausible and even government-friendly outcome of widespread adoption: http://awildduck.com/?p=3121

Really this comment is utter nonsense “Adoption of Bitcoin as a stored value (and not just as a debit or gift card) will leads to a gradual realization among governments that Bitcoin is not a threat to sovereignty nor even to tax policy. Instead it presents unbounded opportunity: The opportunity to stabilize markets, eliminate inflation, reduce costs and restore public trust. ”

No it wont do any of the above. We already complain because large companies like google and apple pay no tax and now you want drug dealers to launder money and pay no tax as well. Bitcoin is an overblown hype. It is enabling a waterfull of drugs to be shoved under the noses of our youth. Very few people (< 1500) own the vast majority of bitcoins. It is a black criminal currency. Remove the encryption and play fair and stop all this rubbish perpetuating in a media that favours the interests of the already very wealthy speculators. Bitcoin has no hope whatsoever of attracting mainstream use when it permits such blatant tax evasion and consorting with the interests of the black market – er and um – no it wont cure the world of economic problems like inflation. ALL it does is reduce transaction fees BUT for that the rest of us law abiding tax paying people have to tolerate being run over by criminal production. Wake up and smell the …

This is so much crap. The only market bitcoin has ever made any money out of is the black drug online market or money laundering for buying units in Cyprus etc (from proceeds of crime). Take buttcoin and flush it.

1. You have a strong disagreement with those who feel the decentralized and private aspects of cryptocurrencies will, in the long run, benefit individuals, legitimate businesses and legitimate international commerce.

2. You acknowledge the low transaction cost of a Bitcoin transaction, but insist on a need for transparency and accountability as a prerequisite to becoming an acceptable vehicle for business transactions.

Regarding the first point above, I will fail to convince you of this in debate, but I feel strongly that you come to enjoy the benefits of Bitcoin both directly and indirectly:

o Any development that enhances privacy can be used by criminals to cover their tracks. o Whenever a technological leap empowers individuals (especially by removing layers of intermediaries and policy wonks), benefits accrue to all parties: individuals, businesses and their institutions. o Without privacy, we would still be stifling the use of public key cryptography to transact business on the web or access public Wi-Fi with a reasonable expectation of privacy.

Regarding the second point above, I agree with you! In business and commerce, there are a great many transactions in which both buyer and seller (or any parties to an exchange) would prefer a more transparent, reversible process, especially one that could be contested, arbitrated or reversed within the constraints of a contract.

But the solution does not entail regulation or adding a layer of centralized authority (nor abandoning a remarkably promising and enabling new technology). That would simply add cost while destroying many of its benefits. It behooves us to think outside the box of a calling for a ‘parental’ government to police the use of its citizens…

A standards organization started within LinkedIN addresses this very issue. Crypsa (Cryptocurrency Standards Association was originally “Virtual Currency Collaborative”) was created to create standards & practices that establish, measure and validate any transaction to which two parties wish such protections. In effect, it offers a voluntary transparency and accountability mechanism in the emerging economy of person-to-person transactions.

Just as with transactions by check, credit card or letter of credit, an Crypsa certified transaction offer bank-like assurances:

o The assurance that a buyer has available funds as claimed o The assurance that the other party’s identity is known to a trusted 3rd party (and revealed honestly, if both parties choose to exchange identity) o The assurance that a wallet address belongs to the other party and is not presented as a “man-in-the-middle” attack o The assurance that a transaction is reversible under rules of escrow, rescission or arbitration. o The assurance that the transaction can be refunded if the two parties have a compliant contract arbitration process o The assurance that the transaction will be accepted as truthful and factual by accounting firms, governments and in any court process. o The assurance that a forensic examiner (someone working against your claim) cannot deny a transaction that was made in good faith.

One doesn’t normally think about these things unless buying a house or a car. But in fact, we assume that all of these things are covered by our bank or credit card provider with each transaction.

Crypsa is not a regulatory body. In fact, they discourage regulation and seek to preserve the privacy benefits conveyed by a decentralized, p2p process. But they also seek to empower anyone using cryptocurrency to immediately and easily determine if a transaction has all of the safety and recourse mechanisms that we normally associate with bank mitigated transactions.

Those choosing to enter into a less transparent transaction are free to do so.

We agree that for Bitcoin to flourish, even if only as a transaction medium, there must be practices and procedures that allow parties to a transaction to incorporate optional transparency, accountability, recourse, and a support for auditing, reporting and forensic mechanisms.

“Many in the Bitcoin community have reacted with disbelief and outrage…”

That’s putting it mildly, but this reaction is hardly unusual for the world’s anarcho-libertarian crackpotariat. Most of what I’m seeing today are the standard calls for doxing (or worse) the journalist, burning down Newsweek’s headquarters, suspending the First Amendment, etc.

Crypto-anarchists’ political philosophy, in regards to First Amendment issues, may be summed up thus: “Free speech for me, but not for thee.”

How sad for a US senator to call on the US to follow the example of China and Thailand, two countries not particularly famous for democracy, human rights, transparency, innovation, or any of the other values that Americans hold dear. I certainly am not one who believes that the US has nothing to learn from other countries, but how about our peers, like the UK and Germany? Bitcoin is better appreciated there.

Someone commented “how sad for the senator to follow China and Russia – two countries not known for democracy” Well fancy that? Russia’s wall came down and China has the fastest growing GDP across the globe. Maybe these two countries can see what unregulated capitalism is doing to the United States (with its democracy now controlled by the vested interests of the 1%) and maybe just maybe, they have a better form of democracy than the United states when they still have enough government left that they can actually make decisions, democratically in the interests of the majority. Has the person who made this comment actually thought about the fact that a lot of people would no longer think the US a democracy but rather a corporatocracy?

The person who made this comment is a political activist who has done quite a lot of thinking about democracy; in fact, he sits on the board of a nonprofit that promotes voting reform. He also lived in Russia for 10 years, has been visiting the Former Soviet Union since 1986, and recently left Moscow after a five-year stint working with the Russian government. He also worked in Kiev in an office that was dismantling Ukrainian nuclear missile silos, as Ukraine gave up its nukes in exchange for security guarantees, which Russia is now violating. Yes, “Russia’s wall came down”, and that was a wonderfully big step that none of us expected, but they need a great many more steps to achieve normalcy. China’s GDP is indeed growing fast, from a very low level, but that is only one indicator out of many. I suggest that you throw out your anecdotal evidence, and my opinions as well, and take a look at some of the more objective indicators of these countries’ well-being, e.g. Transparency International’s corruption index, and you will find that they offer little to emulate. I suggest that you determine an objective set of criteria and assess all countries according to it. At the moment you are all over the map, one moment lauding autocrats’ ability to “make decisions democratically” (are you serious?), and the next lamenting the influence of corporations in the US (so who do you think influences government in Russia and China?). I do, however, admire the Chinese commitment to education; it is no coincidence that my adviser in graduate school was from China.

Let me tell you the most recent news is that 6 people have died at the one music concert in Malaysia. I will bet they all bought their drugs online using bitcoin from any one of the 14 or 16 sites that now sell drugs on the darknet using bitcoin. Expect more of this. They cancelled the concert. You bitcoin lovers need to get a grip and stop worrying about your precious freedoms. The senator is right. Bitcoin is a danger and an anathema to any decent people trying to live their lives without a wall of black market operators thinking they have finally found the perfect currency. Remove the goddamn encryption and straighten bitcoin up, let it follow the same traceability and tax standards as every other legitimate currency or financial institution – otherwise crawl back under the rock you came from. Bitcoin is trash. Its enabling evil criminals to prosper. Clean up the technology, follow the regulations or ….just die bitcoin diehards. you make it so hard for the rest of us. You speak crap, espouse crap and turn an blind eye when bitcoin delivers wrongs and failed markets to the rest of us. Just go, take your buttcoins and die.